Supreme Court crisis adds new uncertainty to Brazil election

Analysts see risks for Lula and an opening for Flávio Bolsonaro, but say scandal-weary swing voters may prove harder to move

 

 

With a month to go before the first round of Brazil’s presidential election, the disclosure Tuesday (1) of messages involving Supreme Court Justice Alexandre de Moraes and former Banco Master owner Daniel Vorcaro is set to become a new factor in the race. The messages show the former banker seeking Moraes’s help and information about a confidential investigation that would eventually lead to Vorcaro’s arrest.

Analysts say the new Supreme Court crisis could energize the base of Liberal Party presidential candidate Flávio Bolsonaro and damage President Lula’s reelection bid. At the same time, candidates seeking to break through the country’s political polarization could also benefit.

Rafael Cortez, a political scientist and partner at consultancy Tendências, sees potential damage to Lula’s candidacy because an association between the president and the Supreme Court has increasingly taken hold in public opinion. Any negative effect, however, will depend on the opposition’s ability—particularly Flávio’s campaign—to deepen that perception.

“I see a potentially negative effect, but it is not a given. Strategically, Flávio’s campaign will have to exploit the issue politically so that voters do not turn the feeling that ‘the mainstream is corrupt’ into abstention, but instead into a vote for the opposition candidate.”

Cortez said the episode could hurt the government because some voters perceive an “informal alliance” between Lula and Supreme Court justices that has resulted in the persecution of Bolsonaro supporters. He therefore believes Flávio is likely to be able to capitalize politically on the issue, since his political movement was the first to embrace an anti-establishment message.

Cortez considers the election open and believes voter turnout will determine the outcome. In that context, the Supreme Court episode could motivate some voters dissatisfied with Lula who might otherwise stay home to turn out and vote. “The chances of major changes in the current landscape are low, but in a close election, small shifts are enough to change the outcome.”

The analyst said Lula faces a paradox: despite high disapproval ratings for his government, he remains ahead in voting intentions. Cortez said the explanation lies more in the opposition’s mistakes than in Lula’s own strength.

 

“If the government had positive approval ratings, we could say nothing would happen [as a result of developments in the Banco Master case at the Supreme Court], but that is not what is happening. The government’s position as favorite rests on shaky foundations and reflects voters’ lack of confidence in the opposition more than support for the president. He is leading, albeit by a narrow margin, despite voters not liking his government.”

With part of the electorate tired of polarization and lacking motivation to turn out, Cortez said the new allegations involving the Supreme Court could draw some of those voters away from abstention and toward Flávio. The political scientist noted that the senator is also the target of investigations related to the Banco Master case pending before the court. “What we are seeing, ultimately, is how the Supreme Court has become drawn into Brazil’s political radicalization. In voters’ eyes, the justices themselves have become political figures.”

Cortez said the episode could lead even some voters who have reservations about Flávio to conclude that criticism from Bolsonaro supporters about the court’s conduct may have some basis. “That could lead voters who disapprove of the government to migrate toward Flávio, making the race even more evenly matched,” he said. Lula’s campaign, Cortez added, could counter the issue by emphasizing its economic agenda, including a proposal to end the six-day workweek with one day off and its message of protecting lower-income Brazilians.

Other opposition candidates could also benefit if they manage to tap into anti-establishment sentiment among part of the electorate, Cortez said. “Those who are using criticism of the Supreme Court as an electoral strategy are likely to gain. Whether that will be enough to turn the race around is another matter.”

Graziella Testa, a political scientist and professor at the Federal University of Paraná, said previous political scandals suggest that the impact of cases like this depends less on the facts themselves than on which narrative ultimately takes hold and who comes to be seen as the “villain” or the “hero.”

Testa said Flávio, who has publicly maintained a confrontational stance toward Moraes, is likely to seek electoral dividends from the episode. She cautioned, however, that there is no automatic link between the case and any change in voting intentions.

According to Testa, criticism of the Supreme Court and some of its justices remains largely divided along partisan lines, particularly among groups on the right. “I don’t think someone who doesn’t know who they are going to vote for is worried about the Supreme Court. This is an issue that mobilizes committed right-wing voters,” she said.

When asked about a possible response from Lula, Testa declined to predict the campaign’s strategy. Based on the president’s previous statements, however, she said Lula would likely argue that the investigation should be allowed to run its course before responsibility is assigned. “He is very likely to say he will wait for the outcome to determine whether anyone should be held responsible,” she said.

Testa also sees little chance that the campaign will turn the case into an in-depth debate about institutional changes to the judiciary or the Supreme Court. Although proposals along those lines may appear in campaign rhetoric, she believes electoral dynamics are more likely to encourage the personalization of the conflict.

“The campaign is very short and needs very precise messages. I think it is more likely there will be a calculation around personalization because that generates more attention and tends to produce a greater electoral payoff.”

Christopher Garman, managing director for the Americas at Eurasia, said the episode is more damaging to Lula because it overshadows issues the government had hoped to highlight positively at this stage of the campaign. The damage may be softened, however, by a widespread perception that corruption is associated with both the Workers’ Party and Liberal Party candidates.

“Voters do not see either of them as credible on corruption. The case [involving Moraes and Vorcaro] does not directly affect President Lula. Still, it is bad for him because it brings a more negative agenda and heavy news coverage at a time when the Workers’ Party campaign wants to highlight measures it says have improved people’s lives. Since neither Flávio nor Lula has credibility on corruption, that softens the direct impact [on Lula], but negative news is bad for the incumbent,” he said.

According to Garman, the scandal hit just as the government was trying to highlight its accomplishments, including the vote on a proposal to end the six-day workweek with one day off. “Voters are pessimistic about the future. And you don’t want pessimistic voters when you are seeking reelection [as Lula is]. But I don’t see this as a factor that changes the probabilities in this election.”

The allegations also competed for attention with the revelation that Vorcaro transferred more money than Flávio had previously acknowledged toward “Dark Horse,” a biographical film about Jair Bolsonaro. Garman said “it is not easy for Flávio” to distance himself from that episode. At the same time, the Eurasia analyst sees broader institutional consequences. “The scandal deepens the crisis at the Supreme Court and puts enormous pressure on Moraes.”

Carlos Melo, a political scientist and professor at Insper, urged caution in assessing the electoral impact, saying “today’s scandal is forgotten when tomorrow’s scandal arrives.” In his view, the economy and public security are the issues that most concern voters, meaning other matters may carry only marginal weight.

Independent voters are unlikely to be mobilized by Tuesday’s revelations, Melo said, because there is already fatigue with successive waves of allegations affecting both sides. “Voters inside each political bubble defend their own side at any cost and attack the other. Independent voters, meanwhile, are starting to look at all of this with a certain disdain. Bombs keep being thrown from one side’s backyard into the other’s, and one ends up canceling out the effect of the other.”

*By  Cristiane Agostine ,  Joelmir Tavares  and  Guilherme Carvalho , Valor — São Paulo

https://valorinternational.globo.com/

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Selective tax decree could bring list of industrialized product exemptions

Current IPI is expected to be restricted to the Manaus Tax Free Zone and apply to just 5% of industrial goods

 

 

 

Tax lawyer Luiz Gustavo Bichara believes the government, “for political reasons and due to disorganization,” has not yet submitted the bill establishing the Selective Tax rates — Foto: Rogerio Vieira/Valor
Tax lawyer Luiz Gustavo Bichara believes the government, “for political reasons and due to disorganization,” has not yet submitted the bill establishing the Selective Tax rates — Photo: Rogerio Vieira/Valor

The Lula administration’s economic team is considering publishing the list of products that will be exempt from the Industrialized Products Tax (IPI) on the same day it sends the provisional presidential decree (MP) on the Selective Tax (IS) to Congress. The IPI will be replaced by the Selective Tax in 2027. The tax will not disappear entirely, however, because it will still be levied on a small list of items to preserve the competitiveness of the Manaus Tax Free Zone (ZFM).

The two measures are eagerly awaited by companies because they can clarify exactly how these taxes will work next year. The consumption tax reform provides for the IPI rate to be reduced to zero starting in 2027 for all products except those produced in the ZFM. The IPI is expected to apply to only 5% of industrial products in the country, with the rate set at zero for the rest.

Supplementary Law 214, which regulates the consumption tax reform, requires the Executive branch to publish a detailed list of products that will have a zero IPI rate starting in 2027. The Federal Revenue Service has promised the publication since the end of May, but its release was delayed by the preparation of the Annual Budget Bill (PLOA) and uncertainties surrounding the Selective Tax.

The strategy now is to publish the list alongside the Selective Tax MP this month, in September. The goal is to link a measure considered negative by one faction of the government—taxing goods and services harmful to health or the environment through the Selective Tax—with a positive one: reducing the IPI rate to zero for about 95% of industrial goods produced in the country.

The decision has not yet been finalized, however. Part of the government’s political wing continues to argue that the Selective Tax MP should be postponed until after the elections, fearing its electoral impact, even though the tax would not represent an increase in the tax burden on the affected sectors. In that case, the IPI details could be released first and the Selective Tax later.

Changes to state and municipal transfers

 

On Monday (31), Finance Minister Dario Durigan reiterated that the rates proposed for the Selective Tax will take into account the same tax burden that the sectors affected by the new tax currently pay in IPI. “The Selective Tax projection takes into account the IPI burden that exists today, as I am negotiating with the sectors, maintaining the commitment not to increase the tax burden,” the minister said.

In the 2027 budget proposal, the government estimated that IPI revenue will amount to just R$5.497 billion, since the tax will be levied only residually to preserve the competitiveness of the ZFM, which generates tax credits. By comparison, the government expects to collect R$99.99 billion from the IPI this year, according to the latest bimonthly report on the assessment of revenues and expenditures in the 2026 budget.

The remainder of today’s IPI revenue was allocated for 2027 between the Selective Tax and the Contribution on Goods and Services (CBS), which will also replace the Social Integration Program/Contribution for Social Security Financing (PIS/Cofins) and the Tax on Financial Operations (IOF)-Insurance. The government estimates it will collect R$636.8 billion from the CBS in 2027 and R$42 billion from the Selective Tax. The figures may change depending on the rates ultimately set for the new taxes.

Revenue from the Selective Tax is much lower because, per the consumption tax reform, it applies only to products and services harmful to health and the environment, rather than to all products currently subject to the IPI.

Tax lawyer Luiz Gustavo Bichara, founding partner of Bichara Advogados, believes the government, “for political reasons and due to disorganization,” has not yet submitted the bill establishing the Selective Tax rates. “And now it will distort the purpose of the decrees, which should be issued in situations of urgency,” he said.

In his view, the delay in setting the rates creates legal uncertainty and makes it harder for companies to plan for next year. It also hampers efforts to attract potential new foreign investors. “How can someone establish themselves in a new country without knowing how much tax they will pay?” Bichara asks.

On the spending side, the near-elimination of the IPI will require the federal government to spend R$33.8 billion in 2027 to compensate states and municipalities for the end of the tax. The amount was also included in the 2027 budget proposal—equivalent to 0.2% of GDP.

The compensation will be necessary because the government shares part of IPI revenue with states and municipalities. In 2027, however, total IPI revenue will be replaced by the Selective Tax and the CBS, and only Selective Tax revenue will be shared with subnational governments, while CBS revenue will remain entirely with the federal government.

Because of that, the tax reform provides for compensation through a constitutionally mandated transfer to states and municipalities. To arrive at the R$33.8 billion figure, the government calculated the difference between what is currently transferred to states and municipalities through the IPI and what will be transferred through the Selective Tax. That difference became the budgetary compensation subnational governments will receive in 2027.

A government official told Valor that if the Selective Tax is significantly weakened during its consideration by Congress, compensation to states and municipalities will have to increase. Likewise, if the Selective Tax is strengthened, the amount will be reduced.

The R$33.8 billion transfer was classified in next year’s budget as a primary expenditure, meaning it is included in the calculation of the primary balance for purposes of meeting the fiscal target. At the same time, it was excluded from the year’s spending limit and classified as expenditure not subject to the cap.

*By Jéssica Sant’Ana — Brasília

Source: Valor International

https://valorinternational.globo.com/

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Banco Master probe reaches Supreme Court, fueling tensions

Federal Police report says banker sought help from a justice before his arrest as court faces dispute over investigation

 

 

 

A Federal Police report made public Tuesday (1) indicates that Supreme Court Justice Alexandre de Moraes was the intended recipient of a series of messages from Daniel Vorcaro, the former owner of Banco Master. In them, the former banker sought intervention and details about the investigation that led to his first arrest, ordered last November. In one message, he allegedly asked Moraes whether he should leave the country. He also allegedly sought protection from the Federal Police and the prosecutor general’s office.

The Federal Police investigation began after a directive from Justice André Mendonça, who is overseeing the Banco Master case, instructing investigators to determine who received messages sent by Vorcaro. Mendonça requested that the prosecutor general’s office respond to the report. Prosecutor General Paulo Gonet—also mentioned in the document—then argued that the Federal Police report should be dismissed. Gonet stated that justices are not responsible for making accusations or “conducting pretrial investigations.”

The investigation revealed that the exchanges were on a former banker’s cellphone, with a contact named “Alexandre de Moraes BRASÍLIA.” The details had been sealed but were made public by Mendonça, who asked the Supreme Court to review the report in a public session.

Vorcaro asked in a message on November 15, “Were we able to do anything? Do you think I need to be out of the country by Monday?” Two days later, Judge Ricardo Leite of the 10th Federal Court in Brasília ordered the banker’s first arrest. The case was initially under seal in a lower federal court before being transferred to the Supreme Court.

The exchange indicates that Vorcaro suspected he might be arrested and knew parts of the investigation, even though the case files were not public. One indication is that the former banker already knew the case was before Leite, whom he referred to in one of the passages identified by the Federal Police. “Right in the week when I’m sorting everything out. That same Judge Ricardo?” Vorcaro asked on November 15.

Based on other messages attributed to the banker, he requested Moraes to intervene with Federal Police Director General Andrei Rodrigues and Prosecutor General Paulo Gonet. “Can’t we reverse this with Paulo or Andrei? This is really messed up,” Vorcaro allegedly told the Supreme Court justice on November 15 last year.

The former banker also allegedly sought legal guidance from Moraes. In one message, he said his defense team was considering filing petitions to determine whether there were ongoing investigations involving Master. He then asked whether the idea should be pursued. “I’m not going to make any move you don’t think would be productive. We’re in the dark.”

 

Another contact shortly before the decision resulted in his arrest. “Do you believe there’s any chance this will happen tomorrow morning?” Finally, on November 17, the day of his arrest, the former banker sent another message: “Any news? Were we able to find out anything or stop it?”

Federal Police investigators also identified nine occasions on which Moraes and Vorcaro allegedly met in person. The first meeting reportedly took place on March 13, 2024, and the last on Aug. 8, 2025. Investigators mapped the meetings through conversations in which other people referred to them.

The Federal Police report also says metadata from a R$131 million legal-services contract between Vorcaro and the law firm of Moraes’s wife, Viviane Barci de Moraes, identifies a username linked to the justice as the author of the last change made to the draft.

Messages show that Vorcaro treated the agreement with the law firm as a priority. In one exchange, dated March 15, 2024, the banker demanded urgent action after employees were late making one of the payments under the agreement.

In a message to Angelo Silva, the former banker wrote that it was the “most important contract we have. I asked you not to let this happen. Unreal. We’re going to have problems. Pay it now.”

The Master owner then sent another message to an employee identified as “Romy Banco Master,” saying payment to the firm could not be “a day late” because “it is the most important payment we have.” He added that the payment could be made “without an invoice” and completed later “however necessary.”

Investigators also identified a draft of a second proposed agreement between Vorcaro and the law firm of Moraes’s wife, valued at R$50 million. The document, dated May 2025, provided for the former banker to pay for the services by transferring ownership of two aircraft.

Viviane Barci’s law firm issued two statements. In one, it said the R$131 million contract had been submitted to Moraes for assessment of any potential conflicts or legal impediments. However, the firm denied that a R$50 million contract existed. “Banco Master’s proposal was not accepted, nothing was signed, and the original contract was terminated when the bank was liquidated, ending any relationship with the institution.”

Prosecutor general drawn into Master messages

Gonet is also mentioned elsewhere in the Federal Police report. Investigators said Vorcaro communicated with the prosecutor general through intermediaries, with contacts allegedly facilitated by lawyer Ciro Soares, who represented the former banker.

In conversations from March 2025, Gonet allegedly asked Soares to pass messages to Vorcaro saying he missed the former banker, and to offer compliments after plans for a trip to London were confirmed.

On March 15, 2025, Soares sent Vorcaro a photograph of himself with Gonet, along with a message asking the former banker to call because the prosecutor general wanted to speak with him. The report then records four voice calls between Vorcaro and Soares, each lasting a few minutes.

Days later, on March 28, the lawyer sent three messages that he said he was forwarding at Gonet’s request. In them, the prosecutor general allegedly wrote: “Great! I’m rooting for you guys!”; “I already miss you! I’m boarding a flight to Rome”; and “Send him this message.” Vorcaro replied: “Thank him very much for the affection. I miss him too, let’s arrange to get together.”

Soares then wrote: “He adores you.” “He’s going to London with us,” he added, before forwarding another message, again attributed to Gonet: “Great!!! I hope there’ll be cigars and Macallan!” Vorcaro replied: “Now we’ll need a cigar plantation and a barrel of Macallan hahaha.”

The following day, according to messages highlighted in the Federal Police report, Soares told Vorcaro that “Gonet asked whether his son can go to London with us.” The former banker responded positively: “Obviously.” The lawyer then forwarded another message attributed to Gonet: “You’re a machine LOL.”

According to the report, Vorcaro received a list from an employee containing names of people “to go to London with expenses paid by us.” The Master owner did not agree with the list but made an exception for “Pedro and Ciro,” whose expenses would be covered, an apparent reference to Pedro Gonet and Ciro Soares.

The event in London was a whisky tasting that the Federal Police director general also allegedly attended.

Justice sends dispute to full Supreme Court

In Tuesday’s decision to make the document public, Mendonça asked the full Supreme Court to consider the report in a “public and transparent” session. He is expected to formally submit the case for consideration next week. Supreme Court President Edson Fachin will then decide when to schedule it. Contacted for comment, Fachin did not respond.

Without mentioning Moraes, Mendonça suggested the existence of an alleged monitoring and influence network that might have been working to benefit Banco Master. He added that, based on the exchanges found by the Federal Police, “the natural progression of these proceedings is to the plenary of this Supreme Court, the sovereign body responsible for thoroughly examining the new evidence presented by the police in a strictly legal and technical manner.”

Moraes and Mendonça met to discuss the case before the Federal Police report was made public. People familiar with the conversation described the meeting as “very tense.” Moraes allegedly questioned whether Mendonça had allowed the Federal Police to investigate him and accused his colleague of steering the investigation. Mendonça, in turn, was said to have asked Moraes how he had learned that investigators were digging deeper into the case.

Prosecutor general seeks to invalidate police report

In his filing with the Supreme Court, Gonet asked that the Federal Police report be declared invalid. “The justice overseeing the case does not even have the authority to direct police action against targets he decides to pursue. At the pretrial stage, investigations are conducted by the judicial police, while the Public Prosecutor’s Office, as the prosecuting authority with exclusive power to bring criminal charges, may also seek evidence on which to base its conclusions.”

Gonet asserted that Mendonça was aware the investigation would involve officials eligible for direct trial by higher courts, including Moraes. “He knew Moraes was among them. He could not have failed to know that. The directive for the Federal Police investigation is dated August 24, 2026. By that date, the judge handling the case already possessed all the detailed material he needed in writing.”

Gonet argued that Mendonça actively sought evidence that Moraes may have been involved in wrongdoing. “Regardless of the extent to which the measure constitutes an investigation, it is undeniable that there was an examination of material in the case aimed at finding evidence of Justice Alexandre de Moraes’s involvement in unlawful acts.”

The prosecutor general further argued that by ordering investigative material to be examined regardless of which authorities it involved, Mendonça effectively imposed an investigation on Moraes. The result, he said, was a 218-page Federal Police report, “nearly 190” pages of which concern the justice.

Moraes, Mendonça, Fachin, the Federal Police and Vorcaro’s defense team did not respond to requests for comment.

*By Tiago Angelo, Giullia Colombo, Mateus Coutinho, Isadora Peron and Mariana Andrade, Valor — Brasília

Source: Valor International

https://valorinternational.globo.com/

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Carbon capture hub could serve ethanol industry

Company seeks ANP approval to test underground CO2 injection in São Paulo using emissions from sugar-and-ethanol mills

 

 

 

Renan Lopes, chief financial officer (left); Tiago Homem, technology director; and Daniel Pedroso, CEO of EnduraCarbon — Foto: Leo Pinheiro/Valor
Renan Lopes, chief financial officer (left); Tiago Homem, technology director; and Daniel Pedroso, CEO of EnduraCarbon — Photo: Leo Pinheiro/Valor

A company founded by former Petrobras and biofuel industry executives has asked the National Agency of Petroleum, Natural Gas and Biofuels (ANP) for authorization to test a project in west-central São Paulo that would capture and store underground the carbon dioxide emitted by the region’s ethanol plants. EnduraCarbon, founded a year ago, plans to capture the CO2 and inject it permanently underground, generating carbon removal credits for companies seeking to offset their greenhouse gas emissions.

The project became possible with the signing of Decree 13095 of 2026 on August 13, which regulates several types of carbon capture, transportation, and storage (CCS) activities provided for under the Fuel of the Future Law.

The decree made the ANP responsible for authorizing projects and regulating the sector. Under the rules, EnduraCarbon’s project falls under bioenergy with carbon capture and storage (BECCS), which uses carbon generated through bioenergy processing or biofuel production.

EnduraCarbon plans to develop a hub with underground carbon injection wells that would receive liquefied CO2 emitted by different mills. Ethanol plants currently release the CO2 generated during fermentation into the atmosphere. Those with biomethane facilities also emit CO2 from the biogas purification process, which separates methane from carbon dioxide.

Calculations by EnduraCarbon’s partners indicate that the hub would require an investment of R$1.5 billion if testing confirms its viability. It could store 1 million tonnes of carbon dioxide a year.

The company spent the past year developing the project and its business model while monitoring CCS technology regulation, CEO Daniel Pedroso said. One of the company’s five partners, Pedroso built his career at the ANP and Petrobras. At the oil company, he held several management positions and most recently headed its CCS operations before leaving with Tiago Homem, now an EnduraCarbon partner and director of projects and technology.

Since founding the company, the partners have studied historical geological and seismic data, including information from wells drilled in the rural areas of São Paulo state by Petrobras and Paulipetro since the 1960s. Their goal was to assess the possibility of injecting gas into saline reservoirs in the state.

“We have been studying the Paraná Basin for CCS opportunities. We saw potential in the bioenergy industry, where we could contribute our expertise,” Pedroso said. The company’s research concluded that the broader Bauru region offers the best conditions for a project of this scale because of both its geology and its proximity to several ethanol plants in São Paulo.

EnduraCarbon has already signed an agreement with Usina São Manoel, located in the municipality of São Manuel, São Paulo, under which the mill will supply the project with CO2 and electricity cogenerated by burning sugarcane biomass.

“Ethanol plants generate biogenic carbon [with a short atmospheric cycle] through ethanol fermentation. There is also a wave of investment [by ethanol plants] in biomethane, which generates additional carbon dioxide,” explained Renan Santos, a former GranBio vice president who is now an EnduraCarbon partner and chief financial officer. The company’s other partners include geologist Renato Darros de Matos, formerly of Petrobras, and Alexsander Costa, formerly of GranBio.

Only one BECCS project is currently under construction worldwide: a project operated by corn ethanol producer FS in Lucas do Rio Verde, Mato Grosso. Scheduled to begin operating in September, the FS project will store carbon emitted by the company’s own plant and account for the removed carbon in the biofuel’s emissions footprint. This will allow FS ethanol to capture more carbon than it emits over its life cycle.

EnduraCarbon’s project is not tied to a single company. Because the hub will not be physically connected to the mills, the carbon will have to be transported there. The plan is to use trucks powered by biomethane, a biofuel with a much smaller carbon footprint than diesel, which the partner mills could supply themselves.

The company also plans to install and operate carbon dioxide liquefaction units at the mills. These units could use electricity cogenerated from sugarcane bagasse to power the liquefaction process, Pedroso explained.

“The project was designed to achieve scale and economic viability. We began talking with mills, and an opportunity emerged for a commercially viable project aligned with major CCS projects worldwide,” the chief financial officer added.

Once the ANP authorizes the studies, EnduraCarbon will have three years to drill wells and conduct testing. If the research confirms that the operation is viable and safe, the company will apply to the ANP for storage authorization. Under the law, companies may operate carbon injection wells for 30 years, with the option of a 30-year extension.

According to Pedroso, the carbon credit market is expected to develop in the coming years as demand grows among technology companies and data centers, allowing credits to be sold under long-term contracts.

Market participants are concerned about how internationally transferred mitigation outcomes (ITMOs)—certificates equivalent to carbon credits that can be exported—will be regulated. The federal government is considering limits on export volumes to ensure an adequate supply of carbon credits for meeting national targets.

Santos said ITMO exports could attract foreign capital. “Because [BECCS] generates an engineered carbon credit [using technology], it is capital-intensive,” he said. According to Santos, the company is in talks with “institutional investors and large companies interested in advancing the climate agenda.”

*By Camila Souza Ramos — São Paulo

Source: Valor International

https://valorinternational.globo.com/

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Brazil’s debt climbs as state-run firms post record deficit

Gross debt reaches 82.5% of GDP, highest since 2021, while federal companies’ shortfall widens nearly 50% through July

 

 

Tiago Sbaderlotto — Foto: Wenderson Araujo/Valor
Tiago Sbaderlotto — Photo: Wenderson Araujo/Valor

Brazil’s general government gross debt, the main gauge of the country’s public debt burden, rose to 82.51% of gross domestic product in July, Central Bank data released Aug. 31 showed. It was the highest level since April 2021, when the ratio stood at 82.62%.

The debt-to-GDP ratio has risen 10.8 percentage points during President Luiz Inácio Lula da Silva’s third term. Lula is a member of the Workers’ Party (PT).

General government gross debt comprises the federal government, the National Social Security Institute (INSS) and regional governments. The ratio rose 0.6 percentage point in July, marking the seventh consecutive monthly increase. In nominal terms, gross debt reached R$10.9 trillion.

Debt drivers

The Central Bank attributed the increase mainly to nominal interest expenses, which added 0.8 percentage point to the ratio, and net debt issuance, which contributed another 0.2 point. Growth in nominal GDP partly offset the increase, reducing the ratio by 0.5 point.

The consolidated public sector — comprising the federal government, states, municipalities and state-owned companies — spent R$99 billion on debt interest in July.

Over the 12 months through July, nominal interest expenses reached R$1.15 trillion, equivalent to 8.67% of GDP. That was up from R$941.2 billion, or 7% of GDP, in the 12 months through July 2025.

Fiscal outlook

Goldman Sachs economist Alberto Ramos said in a report that debt is likely to continue rising given the Lula administration’s “expansionary fiscal stance.”

“The lack of spending control has severely undermined the credibility of the fiscal targets and contributed to an overheated and excessively indebted economy. In addition, a weak fiscal anchor has raised fiscal risk premiums, resulting in the de-anchoring of short- and medium-term inflation expectations,” Ramos said.

Rafael Rondinelli, an economist at MAG Investimentos, said the 10.8-percentage-point increase in the debt ratio under Lula reflects the “sharp increase in spending and the resulting need to keep interest rates at elevated levels.”

Brazil’s Selic base interest rate currently stands at 14%.

Banco Pine projects gross debt will rise to 83.3% of GDP by December 2026 and 87.9% by December 2027.

Gross debt has increased 3.9 percentage points so far in 2026.

State-owned companies

Brazil’s federal state-owned companies posted a record R$8.27 billion deficit from January through July, Central Bank data also released Aug. 31 showed. It was the largest nominal shortfall for the period since the series began in 2002.

The deficit widened 49.8% from R$5.52 billion in the same period of 2025. The Central Bank figures exclude oil giant Petrobras and state-controlled financial institutions such as Banco do Brasil and Caixa Econômica Federal.

Economists see the measure as an important gauge of how state-owned companies affect the public finances.

XP Investimentos economist Tiago Sbaderlotto expects state-owned companies at the federal, state and municipal levels to post a combined deficit of R$10.2 billion in 2026, equivalent to 0.1% of GDP, mainly “due to the performance of [Brazil’s postal service] Correios.” That would be the largest deficit in the Central Bank series.

Sbaderlotto estimates federal companies will account for roughly R$8.2 billion of the shortfall, with state and municipal companies contributing the remaining R$2 billion. XP therefore projects a primary deficit of R$48.2 billion, or 0.4% of GDP, for the consolidated public sector.

“The results of state-owned companies show a similar trend to previous years, with the deficit worsening as a result of a policy of higher spending. Correios is undoubtedly the state-owned company that causes the greatest concern, but we could see problems at other companies in the near future,” Sbaderlotto said.

Gabriel Uarian, chief analyst at Cultura Capital, said “the concentration of the shortfall, particularly at Correios, points to management weaknesses and increases the risk that new capital injections or government guarantees will be needed, putting pressure on the public finances and reducing fiscal room for maneuver.”

Correios losses

Correios posted a net loss of R$5.55 billion in the first half of this year as the postal service undergoes a financial and operational restructuring.

Last year, the company raised R$12 billion in loans from five financial institutions backed by federal government guarantees. The government’s 2027 annual budget proposal, submitted Monday, provides for a R$6 billion federal capital injection into the company.

As a share of GDP, the deficit at federal state-owned companies reached 0.11% in the first seven months of the year, the highest level since 2009, when it stood at 0.12%, with a R$2.13 billion shortfall.

Energy sector

Sara Paixão, a macroeconomics analyst at InvestSmart XP, also highlighted the financial condition of federally controlled energy companies, particularly Eletronuclear, which is facing difficulties related to construction of the Angra 3 nuclear power plant.

Still, Paixão said it is “important to emphasize that a significant portion of the state-owned companies reporting negative results perform strategic functions for the country.”

The Ministry of Management and Innovation in Public Services, Correios and Eletronuclear were contacted for comment but did not respond.

(Estevão Taiar contributed reporting.)

* By Hamilton Ferrari — Brasília

Source: Valor International

https://valorinternational.globo.com/

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